Lloyd's open form
The Lloyd's Open Form has been the maritime industry's preferred form of agreement for salvage for over a hundred years. In response to industry concerns and the declining number of LOF contracts being concluded each year, an update to the Form was published in June this year.
At first glance, the update is deceptively simple. No change is made to the structure of the Form. The basic contract data are still filled in by the parties in the boxes on the first page, with clauses and important notices following.
The clauses themselves, A through L, are similarly unchanged. The Special Compensation P&I Clauses (Scopic) and Lloyd's Salvage Arbitration Clauses (LSAC) remain incorporated, though the former can still be excluded by the parties.
There are however a few changes regarding fees and data protection in the important notices to which asset insurers should be alive.
Important notices
Whereas previously the Form stipulated that no fee was payable to Lloyd's for notification by the Contractor that an agreement under the LOF had been entered into, this provision has been removed, presumably to align the Form with the fee structure introduced by Lloyd's Salvage Arbitration Branch in January of 2023.
The 2023 fee structure incorporates a management/oversight fee of 0.025% of the total salved value (with a minimum fee of £1,000 and a maximum fee of £10,000 per Form), wherever the Form is used in a casualty. This fee is in addition to the hour-based fee charged by Lloyd's for time actually used in support of casualty cases.
Notice 5 requires contractors and owners of the property specified in the Form to provide ESG data and salved values within 60 days of the termination of the salvage services, and settlement data within 60 days of any settlement concluded between any of the parties to the Form.
Data collected by Lloyd's will be kept confidential, other than through publication of aggregated and anonymised data relating to use of the Form.
Notice 5 is in reaction to the increased requirements around the ESG credentials of corporations, and the increased difficulty experienced by underwriters' in appropriately managing their risks. The decreasing number of published awards have impeded underwriters' ability to assess the scope and quantum of claims they are likely to receive, and therefore how much to charge in premiums.
Other more significant changes have been made to the LSAC clauses that are incorporated.
Lloyd's Salvage Arbitrations Clauses
There are a few general updates: to align the LSAC with the new Form; to incorporate gender neutral language; to remove references to fax numbers; and allow for video as well as telephone conference calls to be conducted by the arbitrator (for which the arbitrator now no longer needs the parties' consent).
The arbitrators' powers in clause 6 remain largely the same – barring the expanded video-conferencing authority mentioned above. The provision that explicitly allowed the arbitrator to admit oral or documentary evidence or information has been removed, but that power is adequately provided for in the general authority "to conduct the arbitration in such a manner and in all respects as the arbitrator may think fit."
At clause 7, it was previously the case that any party wishing to be heard or to adduce evidence in the arbitration must appoint an agent or representative ordinarily resident in the United Kingdom. The requirement of residence in the United Kingdom has been removed, leaving parties free to appoint representatives of their choice – a move which may make arbitration significantly more convenient and cost-effective for non-UK parties.
At clause 8, the Fixed Costs Arbitration Procedure (FCAP), designed for expedient resolution of lower value claims, has been replaced by the Fast-Track Documents Only (FTDO) procedure.
The FTDO will apply automatically, unless ordered otherwise by the arbitrator, in every arbitration where the security demanded is USD10,000,000 or less. This is a significant jump from the FCAP, which was generally employed where security demanded was below the USD2,000,000 mark.
While an oral hearing is the default procedure where security exceeds the USD10,000,000 threshold, it remains open to the arbitrator to order that the FTDO will be applied (and, as always, to conduct the arbitration as the arbitrator may think fit). The FTDO cannot, however, be used where the arbitrator considers that an oral hearing is necessary or appropriate.
Clause 9 details the FTDO procedure. Some of the salient changes from the old FCAP include a slight increase in the length of bundles and submissions allowed, and the removal of a disclosure process. Only documents upon which each party intends to rely are to be put forward.
The costs recoverable from the arbitration are capped according to limits published by Lloyd's Salvage Arbitration Branch. Currently, those limits represent a significant increase on the limits set for the FCAP procedure, with a maximum of £75,000.00 recoverable for the successful party in the first instance, and £50,000.00 on appeal.
There are a number of changes to the oral hearing procedure.
The arbitrator's initial order for directions now addresses the fixed issues already listed in clause 10.2, plus any matters considered by the arbitrator to be appropriate. Previously, issues considered appropriate by any party would be included as well. Presumably the arbitrator will consider the parties' views.
Awards must now be produced to the Council only within a reasonable period after the conclusion of the hearing, rather than within a month.
The appeal proceedings remain unchanged, barring the facilitation of appeals for the new FTDO procedure. A key change from the FCAP appeal process is the removal of the provision that an appeal on this fast-tracked basis will be heard on documents and submissions alone, opening the door to oral evidence being heard on appeal. Given the nature of the proceedings, it is likely that this would take place only in rare circumstances.
Clause 14 deals with the power of the arbitrator to take into account settlement agreements reached with owners of salved cargo, comprising at least 75% by value of the total salved cargo, when assessing a salvage award against cargo owners who have not settled.
The revised Form no longer contains the requirement that, for clause 14 to be triggered, the owners of cargo who have entered into a settlement agreement must be represented at the arbitration. This should enhance the efficacy of the provision by allowing the arbitrator to deal appropriately with minority cargo interests even where majority interests who have settled are not represented at the arbitration.
Finally, the new clause 15 includes greater detail on the new information collection provisions in the updated Form, and stipulates the confidentiality of that information.
Conclusion
Overall, the changes to the Form deal with modernising its provisions.
The changes to the arbitration procedure and to an extent the new information gathering provisions, are clearly a concerted effort by Lloyd's to respond to challenges currently facing the use of the Form. They are aimed at ensuring the continued relevance of the Form and the convenience and usability of the LSAC.
Whether this is enough remains to be seen, but it is a welcome sign that Lloyd's remains alert and eager to respond to industry concerns.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.